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Increased Our Fair Value for Berkshire Hathaway

Alleghany purchase looks like another value-enhancing deal.

With the 25-day go-shop period attached to Berkshire Hathaway's BRK.A BRK.B acquisition of Alleghany expiring, and no competing proposals to purchase the company arising, we have increased our fair value estimate for the wide-moat firm to $550,000 ($367) per Class A (B) share from $525,000 ($350). Our new fair value estimate is equivalent to 1.41 and 1.24 times our estimates for Berkshire's book value per share at the end of 2022 and 2023, respectively. For some perspective, during the past five (10) years, the shares have traded at an average of 1.42 (1.41) times trailing calendar year-end book value per share.

During the go-shop period, Alleghany and its financial advisor solicited alternative acquisition proposals from 31 potentially interested third parties but did not receive any alternative acquisition proposals. Berkshire is paying $848.02 per share in cash for Alleghany, which works out to a multiple of 1.26 times Alleghany's book value per share at the end of 2021. We view this as a reasonable price for what Berkshire is getting though the acquisition.

During the past five (10) years, Alleghany's shares have traded at an average of 1.12 (1.07) times trailing calendar year-end book value per share, implying that Berkshire is paying around a 15% premium over historical trading prices. The purchase price also represented a 29% premium to Alleghany's average stock price over the 30 days prior to the offer being announced, as well as a 16% premium to the firm's 52-week high closing price at the time. As such, it does not surprise us that no one stepped up to match Berkshire's all-cash offer of $11.6 billion for Alleghany.

Alleghany is a good fit for Berkshire, contributing a platform comprised of reinsurance and insurance (which accounted for 68% of the company's revenue last year), Alleghany Capital (which contributed 31%), and corporate-initiated activities. We feel Berkshire is better positioned than most other perceived buyers to get the most value out of Alleghany.

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